Appointment of Arbitrators

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arbitrators

Number of Arbitrators

The Arbitration and conciliation Act of 1996 states that parties can determine the number of arbitrators they wish to appoint however, this should not be an even number.If they are unable to do so, the arbitral tribunal shall consist of a sole arbitrator. The statutory requirement of odd numbers of arbitrators is can be moved away from, which means that if they wish to exercise an option of choosing even number of arbitrators and agree to not to challenge the award thereafter, the award rendered would be a valid and binding. If neither of the parties challenge the composition then any challenge to the composition must be raised by a party before the time period prescribed under the Act, failing which it will not be open to that party to challenge the award after it has been passed by the arbitral tribunal. The Act enables the arbitral tribunal to rule on its own jurisdiction. A challenge to the jurisdiction of the arbitral tribunal cannot be raised, after the submission of the statement of defense although the party might have participated in the appointment of the arbitrator and might have appointed the arbitrator himself. Both parties can choose the arbitrators.

Qualification of Arbitrators

The parties should ideally follow an agreed procedure for appointing the arbitrators. However if that fails and an application is filed in court for appointment, the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to any qualifications required of the arbitrator by the agreement of the parties.[i]
A clause in the agreement,which provides for settling the dispute by arbitration through arbitrators having certain qualifications or in certain agreed manner is ordinarily followed by the courts and not derogated from unless there are strong grounds for doing so. The appointment of an arbitrator can be challenged within 15 days after he learns of the constitution of the arbitral tribunal or after becoming aware of the circumstance that he does not possess the necessary qualification.
It is not open to a party, especially in government contracts, to contend that appointment of only one arbitrator only by one of the parties to the dispute will violate the principle that no man can be a judge in his own cause if that party had voluntarily entered into the contract with knowledge of this fact and had thus accepted the terms and conditions of the contract. The question of its maintainability before the arbitral tribunal stating that the arbitration clause in the contract between the parties is void and unenforceable law cannot be accepted.[ii]

Requirements for Filing an Application for the appointment of an arbitrator

The essential pre-conditions to be satisfied before an application for appointment of arbitrator by Court is filed are:
(i) There should be an arbitration clause in the contract in terms of section 7;
(ii) The party filing the application should have knowledge of the arbitration agreement;
(iii) There is a dispute between the parties in relation to the contract containing the arbitration agreement.
(iv) A notice invoking an arbitration clause has been issued and received by the other party.

Existence of ‘Dispute’ a Precondition of the Right to Seek Appointment

A dispute or difference is a pre-condition of the right to arbitrate and seek an appointment. Mere disagreement on a central issue is sufficient to constitute a dispute, a claim need not necessarily arise. And merely raising a claim cannot satisfy the precondition of the dispute.

Appointment of Arbitrator through Court Assistance

An arbitration agreement as defined under Section 7 of the Act is a condition precedent in order to exercise the power to appoint an arbitrator or an Arbitral Tribunal, according to Section 11 of the Act by the Chief Justice or his designate.

The Supreme Court has identified the duties of the chief justice or his designate.[iii] First they identified and separated the preliminary issues that arise from the application under Section 11 of the Act into three categories, that is:

(i) Issues that the Chief Justice or his designate must decide;

(ii) Issues which the Chief Justice or his designate choose to decide

(iii) Issues that have to be left to the Arbitral Tribunal to decide.

Section 11 of the Act provides for the procedure to appoint an arbitrator or arbitrators with court assistance. The primary objective of seeking court interference under the Act is so that securing the constitution of the arbitral tribunal can happen expeditiously. Parties can agree upon a procedure for appointment of a sole arbitrator or arbitrators as under sub-section (2) of section 11 and can approach the court in the event they don’t have a procedure.The court’s jurisdiction and the nature of its power as per section 11 has been quoted directly from the judgment[iv]:

“(i) The power of the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is a judicial power.

(ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of that court to another judge of that judge.

(iii) The Chief Justice or the designated Judge will have to decide the preliminary aspects as indicated earlier. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge.

(iv) Designation of a District Judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act.

(v) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.

(vi) Since an order passed by the Chief Justice of the High Court or by the designated Judge of that Court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution to the Supreme Court.

(vii) There can be no appeal against an order of the Chief Justice of India or a Judge of the Supreme Court designated by him while entertaining an application under Section 11(6) of the Act.

(viii) In a case where the parties have constituted an Arbitral Tribunal without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act.

(ix) Orders under Section 11(6) of the Act have been made based on the position adopted in an SC decision[v], we clarify that appointments of arbitrators or Arbitral Tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act.

(x) Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications if any pending before them as on this date will stand transferred, to be dealt with by the Chief Justice of the High Court concerned or a Judge of that Court designated by the Chief Justice.”[vi]

For the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, two things have to be taken care of:

(i) That there is a dispute between the parties to the agreement and it is alive

(ii) That the arbitrator has to be appointed according to the terms and conditions of the agreement and as per the need of the dispute.

Frequently Asked Questions

1. Can the parties decide on the nationality of the arbitrator?

Parties can pick an arbitrator from a nationality of their choice. It is not compulsory for the arbitrator to be of a nationality other than the nationalities of the parties to the agreement.

2. Can the order of the SC or the HC be appealed against with respect to appointment of the arbitrator?

The appeal will lie in Article 136 since the order of the court is not an administrative but a judicial order.

3. What if one partyrefuses to appoint an arbitrator?

If the party having responsible under the arbitration agreement fails to appoint an arbitrator or arbitrators according to the agreed procedure for appointment, within 30 days of the demand being made by the other party, the party having the right to make such appointment can be said to have waived his right and the other party would be open to approach the court and seek the appointment of the arbitrator in accordance with the agreed procedure. The right to appoint the arbitrator or arbitrators of the defaulting party would continue to exist till the time the other party has not filed an application before the court seeking appointment of the arbitrator or arbitrators. Once the other party has filed the application in the court, the right to make the appointment is lost and the chosen procedure is abandoned.[vii]

4. Can there be a challenge to the Order of Appointment?

The power exercised by the Chief Justice or the Judge designated at the time of appointment of arbitrator is in the nature of a judicial order and not an administrative power. The function of the Chief Justice or his designate under Section 11 is only to nominate an arbitrator or two arbitrators that were not appointed by the parties.

5. Is there a limitation for filing an Application Seeking Appointment?

The period of limitation of arbitration starts from the date on which, no cause of action would have accrued, just like the case of actions the claim is not brought after the expiration of a specified number of years from the date on which the cause of action accrued.

An application under section 11 of the Act for appointment of arbitrator is dependent on Article 137 of the schedule to the Limitation Act, 1963 and has to be made within 3 years from the date when the right to apply initiates. However, the right to apply does not exist unless there is a clear denial of that right by the respondent. It is thus clear that the claim for arbitration has to be raised as soon as the cause for arbitration arises as in the case of cause of action arises in a civil action. An application filed after the completion of the three years will be barred by limitation. Any referrals to negotiations or agreement between the parties do not put the running of the limitation period on hold. Till the time that the settlement talks are going on no issue arises and with the result the limitation does not start running. The parties must have a dispute, which the parties have started deliberating over for Article 137 commences.

Edited by Shuvneek Hayer

Approved & Published – Sakshi Raje

Reference

[i] Arbitration and Conciliation Act, 1996, Section 11(8)(a)

[ii]NandanBiomatrix Ltd. v. D1 Oils Ltd2009 4 SCC 495

[iii]S.B.P.& Co. v. Patel Engineering2005 8 SCC 618

[iv]S.B.P.& Co. v. Patel Engineering2005 8 SCC 618

[v]Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd2000(8) SCC 159

[vi]S.B.P & Co. v. Patel Engineering2005 8 SCC 618

[vii]Arbitration and Conciliation Act, 1996,Section 11(4)